Fulgent Genetics (FLGT 1.33%) has been a fascinating company to watch over the past few years. Since the end of 2019, its shares are up 187% compared to the S&P 500's 23%. While that's an impressive market beat, there was a point in early 2021 when Fulgent's stock was up over 1,300%.

This wild stock movement was spurred on by incredible revenue growth due to Fulgent's ability to pivot to providing COVID-19 tests early in 2020. That made the company a prime example of the pandemic-induced mania the stock market saw over the past few years. 

As the pandemic has slowly subsided, Fulgent has continued to put up strong results, but the most recent quarter raised a concern I think investors should be aware of now. Let's take a look.

Green Flag: Core revenue growth remains strong

The core of Fulgent's business is its next-generation sequencing (NGS) genetic tests. This customizable menu of tests has been a successful foundation for the business for years. Once the company began receiving massive amounts of revenue from COVID tests, it became necessary for Fulgent to break out its NGS core revenue separately.

In the recently reported third quarter, core revenue was up 110% to $56 million year over year, continuing this trend of strong growth that goes back several quarters. Core revenue was up 59% in Q1 and 102% in Q2.

This growth has been a key metric for investors to follow as the COVID testing revenue was always going to be temporary, at least at the volume seen over the past few years. Without knowing this important metric, one might see the the third quarter's 54% revenue decline or the 57% decrease in billable tests and assume the company is in trouble.

In fact, Fulgent ended the quarter with $918 million in cash, cash equivalents, and short-term investments on its balance sheet while bringing in $21 million in cash from operations. The balance sheet is strong, and the core of the business continues to grow.

Red Flag: A new acquisition raises some concerns

Fulgent's management proved to be shrewd capital allocators with the revenue windfall resulting from the COVID testing revenue. In addition to solidifying the balance sheet, the company made acquisitions and signed agreements that increased its exposure to the cancer testing space and expanded its footprint in China.

However, on the same day as the Q3 2022 earnings release, Fulgent announced the acquisition of Fulgent Pharma, raising my level of concern about management. If you're wondering how management acquired a company of the same name, it's because they used to be one company. As part of the initial public offering (IPO) process for Fulgent Genetics, it spun off Fulgent Pharma and is now bringing it back into the fold. 

According to the third quarter 10-Q SEC filing, Fulgent Genetics' CEO, Ming Hsieh, was the manager and a member of Fulgent Pharma until April of this year. This makes me wonder whether Hsieh's involvement with Fulgent Pharma drove the acquisition more than business fundamentals.  

Additionally, Fulgent Genetics' Board of Directors has only three members, and one of them is the CEO. A board this small is unusual and reduces the number of decision makers when it comes to things like acquisitions.

This information about Fulgent has not led me to sell my shares, but it has given me pause. I believe that Fulgent is a strong business with a bright future. But investors should be aware of these green and red flags when making investment decisions.